Lord Tyrie, former chair of the Competitions and Markets Authority and the Treasury Select Committee, said homeowners taking out ultra-long mortgages needed to be made aware of what they are signing up to.
He added: “In general, the greater the choice the better it is for consumers. But it is crucial that the terms of the loan, and its implications, are fully explained at the start.”
However, Baroness Altmann, a former pensions minister, said the availability of 40-year terms was a good thing for house buyers.
She added: “[Banks] are trying to give people the opportunity to buy a house with mortgage rates going up. It’s a way of getting on to the housing market. Nobody stays at their property for 40 years – most will either sell or remortgage at a lower rate.”
Lenders are becoming increasingly wary about people borrowing into retirement. In March, Halifax imposed a new 70-year age limit on thousands of homebuyers as banks seek to rein in risky mortgage lending.
The changes apply to those who are increasing the size of their mortgage, or who have relatively weak credit ratings. If these people want to borrow past the age of 70, they will have to prove they can cover their costs with a pension.
Karina Hutchins, of UK Finance, said: “The proportion of longer-term mortgages has been increasing in recent years as buyers look for ways to stretch their affordability.
“When reviewing new mortgage applications, lenders will act within the responsible lending rules set by the Financial Conduct Authority and carefully consider whether the borrower will be able to afford their mortgage in the future.
“This will include whether the requested term would take the borrower beyond their anticipated retirement age. Where this is the case, it is common practice for lenders to request proof of pension.
“Those closer to retirement, usually within 10 years, may need to satisfy their lender that they can afford the mortgage based on their retirement income.
“Whilst longer mortgage terms can offer lower initial monthly repayments, the borrower will pay more in interest and have less disposable income to put into their pension if the mortgage runs for its full term.”
